What is quantf research ETF Correlations all about?

quantf research ETF Correlations is a product of quantf research website. An important concern of many investors is spotting new opportunities, either for growth or for protection of existing positions. Therefore, the quantf research ETF Correlations product analyses the correlation levels among the ETFs considered in the quantf research ETF Signals product.

Why are quantf research ETF Correlations important?

Having an idea of how assets and asset groups correlate with one another is an invaluable tool for achieving both of the above aims. Thus the provision of correlation estimates, as a simple and highly interpretable measure of (linear) co-movement. Knowing how assets relate to one another, in sign and in strength, can help an investor to structure his/her portfolio, to eliminate assets with duplicate performance and to hedge positions using assets of opposite signs that those on existing positions.

How do I read the quantf research ETF Correlation Selection and Sample ETF Correlation Selection tables?

What are their differences?

The main difference of the above tables is the way that correlations are computed. In thequantf research ETF Correlation Selection correlations are calculated using the Thomakos and Papailias (2013b) methodology, whereas in the Sample ETF Correlation Selection the methodology is the standard pairwise correlation methodology

Should I invest in the quantf research ETF Correlation Selection?

It depends: if you are a pairs trader and the standard pairwise sample correlation is one of your tools, you definitely benefit of our product. Furthermore, these correlations are also useful for monitoring the cross-dependence of ETFs in a region or across different regions.

How do I read the quantf research ETF Correlation Matrix?

At first you have to select 2 up to 10 different ETFs. Once you submit your selection, the correlation table appears. In all cells of this table there are two values: the top value is the correlation coefficient calculated using the Thomakos and Papailias (2013b) methodology and the bottom value is the relevant pairwise sample correlation coefficient. They are both calculated using the price returns of the past 11 trading days. Critical values are marked with blue (if the correlation level is above 0.5) and red (if the correlation level is below -0.5) colours.

Why is the quantf research ETF Correlation Matrix useful?

The quantf research ETF Correlation Matrix provides a direct comparison of the correlation coefficients calculated as in Thomakos and Papailias (2013b) versus the standard pairwise methodology. Therefore, for investors who regularly use the pairwise correlation as one of their trading tools this correlation matrix is particularly useful as it provides an extra information.

How do I read the quantf research ETF Correlations by Region?

At first, the ETF that has the highest correlation within a specific region is selected as the most representative ETF of that market. Then, its correlation with the most representative ETFs of other markets is calculated. The quant research ETF Correlation Matrix (top table) uses the Thomakos and Papailias (2013b) methodology, whereas the Sample ETF Correlation Matrix uses the standard pairwise approach.

Why is the quantf research ETF Correlations by Region useful?

The comparison quant research ETF Correlation Matrix and Sample ETF Correlation Matrix provide useful results regarding the cross-dependence of regional markets on the world map.

How are quantf research ETF Correlations calculated?

The methodology used in the above calculation is introduced in Thomakos and Papailias (2013b).

Why are the last 11 periods used?

A fixed rolling window period of 11 past observations is used for two reasons: first, an extensive backtesting indicates that this number is a reasonable one in terms of robustness to alternatives and overall performance and risk management; second, it is meant to account for short-term changes in asset behaviour in a time frame that is consistent with trading strategies suggested elsewhere on quantf research website. One would, of course, get different results from the use of another rolling window.

How often are new correlations calculated?

New signals are provided on a daily basis (US holidays and all other dates where NYSE market is closed are excluded).

What is the source of the data used?

In all computations the data is collected from Yahoo! Finance (finance.yahoo.com). quantf research is not responsible for the accuracy of the data. quantf research does not redistribute the data which are used exclusively for research and information purposes.

What are the ETFs used in each region/group?

Here follows a table of all the ETFs used in the quantf research ETF Correlations product. All descriptions and details are taken from the ETF Database website.

Global

IEV: This ETF tracks the index that measures the performance of stocks in continental Europe and the United Kingdom. Issued by iShares.

EZU: This ETF tracks the index that measures the performance of equity markets of the EMU member countries: those members of the European Union who have adopted the Euro as its currency. Issued by iShares.

EFA: This ETF tracks the index that measures the performance of equity markets in European, Australasian, and Far Eastern markets. Issued by iShares.

EPP: This ETF tracks the index that measures the performance of the Australian, Hong Kong, New Zealand, and Singapore equity markets. Issued by iShares.

ILF: This ETF tracks the index that measures the performance of four Latin American equity markets: Mexico, Brazil, Argentina, and Chile. Issued by iShares.

EEM: This ETF tracks the index that measures the performance of the emerging market stocks. Issued by iShares.

VGK: This ETF tracks the index that is made up of approximately 511 common stocks of companies located in 17 European countries. Issued by Vanguard.

VWO: This ETF tracks the index that represents components of the FTSE Emerging Index and South Korean stock exposure. FTSE Emerging Markets ETF is an exchange-traded share class of Vanguard Emerging Markets Stock Index Fund. The fund invests substantially all (normally about 95%) of its assets in the common stocks of the index, while employing a form of sampling to reduce risk. The FTSE Emerging Transition Index will gradually reduce South Korean equity exposure over about six months while proportionately adding exposure to stocks of companies located in other countries based on their weightings in the destination index, the FTSE Emerging Index. Issued by Vanguard.

VPL: This ETF tracks the index that consists of approximately 836 common stocks of companies located in Japan, Australia, South Korea, Hong Kong, Singapore, and New Zealand. Issued by Vanguard.

VEU: This ETF tracks the index that includes approximately 2,200 stocks of companies in 46 countries, from both developed and emerging markets around the world. Issued by Vanguard.

VEA: This ETF tracks the index that measures the performance of equity markets in European, Australasian, and Far Eastern markets. Issued by Vanguard.

BKF: This ETF tracks the index that measures the combined equity market performance in Brazil, Russia, India, and China. Issued by iShares.

AAXJ: This ETF tracks the index that measures the performance of 11 developed and emerging equity markets. Issued by iShares.

SPY: This ETF tracks the index that measures the performance of the large capitalisation sector of the U.S. equity market. Issued by State Street SPDR.

DIA: This ETF tracks the index the Dow Jones Industrial Average Index. The Dow Jones Industrial Average is a price-weighted index of 30 "blue-chip" U.S. stocks. It is the oldest continuing U.S. market index. Issued by State Street SPDR.

QQQ: This ETF tracks the index that includes 100 of the largest domestic and international nonfinancial companies listed on the Nasdaq Stock Market based on market capitalisation. Issued by Invesco PowerShares.

IWM: This ETF tracks the Russell 2000 index. This index measures the performance of the small-cap segment of the U.S. equity universe and is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 10% of the total market capitalisation of that Index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. Issued by iShares.

VTI: This ETF tracks the index which represents 99.5% or more of the total market capitalisation of all of the U.S. common stocks regularly traded on the New York and American Stock Exchanges and the Nasdaq over-the-counter market. Issued by Vanguard.

SDS: This ETF tracks seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the S&P500 Index. Issued by ProShares.

TZA: The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe and is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 10% of the total market capitalisation of that Index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. This is a bearish ETF. Issued by Direxion.

TNA: The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity universe and is comprised of the smallest 2000 companies in the Russell 3000 Index, representing approximately 10% of the total market capitalisation of that Index. It includes approximately 2000 of the smallest securities based on a combination of their market cap and current index membership. This is a bullish ETF. Issued by Direxion.

FAS: The Russell 1000 Financial Services Index is a capitalization-weighted index of companies that provide financial services. This is a bullish ETF. Issued by Direxion.

FAZ: The Russell 1000 Financial Services Index is a capitalization-weighted index of companies that provide financial services. This is a bearish ETF. Issued by Direxion.

VXX: This ETF tracks the index which offers exposure to a daily rolling long position in the first and second month VIX futures contracts and reflects the implied volatility of the S&P 500 Index at various points along the volatility forward curve. The index futures roll continuously throughout each month from the first month VIX futures contract into the second month VIX futures contract. Issued by Barclays iPath.

XIV: This ETF tracks an index that is designed to reflect the returns that are potentially available through an unleveraged investment in short-term futures contracts on the CBOE Volatility Index. Issued by VelocityShares.

Canada

EWC: This ETF tracks the index that measures the performance of the Canadian equity market. Issued by iShares.

Mexico

EWW: This ETF tracks the index that measures the performance of the Mexican equity market. Issued by iShares.

South America

EWZ: This ETF tracks an index which is designed to measure broad based equity market performance in Brazil. A capping methodology is applied that limits the weight of any single component to a maximum of 25% of the MSCI Brazil 25/50 Index. Additionally, the sum of the components that individually constitute more than 5% of the weight of the MSCI Brazil 25/50 Index cannot exceed a maximum of 50% of the weight of the MSCI Brazil 25/50 index in the aggregate. The index consists of stocks traded primarily on the stock exchanges in Brazil. Issued by iShares.

ECH: This ETF tracks the index that measures the performance of the Chilean equity market. Issued by iShares.

Europe

EWD: This ETF tracks the index that measures the performance of the Swedish equity market. Issued by iShares.

EWG: This ETF tracks the index that measures the performance of the German equity market. Issued by iShares.

EWI: This ETF tracks the index that measures the performance of the Italian equity market (issued by iShares).

EWL: This ETF tracks the index that measures the performance of the Swiss equity. Issued by iShares.

EWN: This ETF tracks the index that measures the performance of the Dutch equity market. Issued by iShares.

EWP: This ETF tracks the index that measures the performance of the Spanish equity market. Issued by iShares.

EWQ: This ETF tracks the index that measures the performance of the French equity market. Issued by iShares.

EWU: This ETF tracks the index that measures the performance of the British equity market. Issued by iShares.

Asia

Japan

EWJ: This ETF tracks the index that measures the performance of the Japanese equity market. Issued by iShares.

China

FXI: This ETF tracks the index that measures the performance of the largest companies in the China equity market. Issued by iShares.

FXP: This ETF seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the FTSE/Xinhua China 25 Index. Issued by ProShares.

India

EPI: This ETF tracks the WisdomTree India Earnings Index. This is a fundamentally weighted index that measures the performance of companies incorporated and traded in India that are profitable and that are eligible to be purchased by foreign investors as of the index measurement date. Issued by WisdomTree.

PIN: This ETF tracks the index that is designed to replicate the Indian equity markets as a whole, through a group of 50 Indian stocks selected from a universe of the largest companies listed on two major Indian exchanges. The India Index has 50 constituents, spread among the following sectors: Information Technology, Health Services, Financial Services, Heavy Industry, Consumer Products and other. Issued by Invesco PowerShares.

Rest

EWH: This ETF tracks the index that measures the performance of the Hong Kong equity market. Issued by iShares.

EWM: This ETF tracks the index that measures the performance of the Malaysian equity market. Issued by iShares.

EWS: This ETF tracks the index that measures the performance of the Singaporean equity market. Issued by iShares.

EWY: This ETF tracks the index that measures the performance of the South Korean equity market. Issued by iShares.

EWT: The index measures the performance of the Taiwanese equity market. Issued by iShares.

THD: This ETF tracks the index that measures the performance of the Thai equity market. Issued by iShares.

IDX: This ETF tracks the index that provides exposure to publicly traded companies that are domiciled and primarily listed in Indonesia, or that generate at least 50% of their revenues in Indonesia. Issued by Van Eck.

EIDO: This ETF tracks an index that is a free-float adjusted market capitalisation weighted index designed to measure the performance of equity securities in the top 99% by market capitalisation of equity securities listed on stock exchanges in Indonesia. Issued by iShares.

Australia, Africa, Eurasia

EWA: This ETF tracks the index that measures the performance of the Australian equity market. Issued by iShares.

EZA: This ETF tracks the index that measures the performance of the South African equity market. Issued by iShares.

TUR: This ETF tracks the index measures the performance of the Turkish equity market. Issued by iShares.

ERUS: This ETF tracks an index is a free-float adjusted market capitalisation weighted index designed to measure the performance of equity securities in the top 85% of market capitalisation of equity securities listed on stock exchanges in Russia. Issued by iShares.

Currencies (FOREX)

FXE: This ETF tracks the EUR/USD FOREX. The EUR/USD exchange rate is a foreign exchange spot rate that measures the relative values of two currencies, the euro and the U.S. dollar. Issued by Guggenheim.

FXA: This ETF tracks the AUD/USD FOREX. The fund is designed to track the price of the Australian dollar relative to the U.S. dollar. Issued by Guggenheim.

FXF: This ETF tracks the USD/CHF FOREX. The fund is designed to track the price of the Swiss franc relative to the U.S. dollar. Issued by Guggenheim.

FXY: This ETF tracks the USD/JPY FOREX. The U.S. dollar/Japanese yen exchange rate is a foreign exchange spot rate that measures the relative values of two currencies, the Japanese yen and the U.S. dollar. Issued by Guggenheim.

UUP: This ETF tracks a rules-based index composed solely of long USDX futures contracts. The USDX futures contract is designed to replicate the performance of being long the US Dollar against the following currencies: Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc. Issued by Invesco PowerShares.

EUO: This ETF seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the U.S. Dollar price of the Euro. Issued by ProShares.

YCS: This ETF seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the U.S. Dollar price of the Yen. Issued by ProShares.

XLU: This ETF tracks the Utilities Select Sector Index. This index includes companies from the following industries: electric utilities; multi-utilities; independent power producers & energy traders; and gas utilities. Issued by State Street SPDR.

IYR: This ETF tracks an index measures the performance of the real estate industry of the U.S. equity market. Issued by State Street SPDR.

XHB: This ETF tracks the S&P Homebuilders Select Industry Index. This index represents the homebuilding sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Homebuilders Index is an equal weighted market cap index. Issued by State Street SPDR.

GDX: This ETF tracks an index that provides exposure to publicly traded companies worldwide involved primarily in the mining for gold, representing a diversified blend of small-, mid- and large- capitalization stocks. Issued by Van Eck.

XRT: This ETF tracks the S&P Retail Select Industry Index. This index represents the retail sub-industry portion of the S&P TMI. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Retail Index is an equal weighted market cap index. Issued by State Street SPDR.

XOP: This ETF tracks the S&P Oil & Gas Exploration & Production Select Industry Index. This index represents the oil and gas exploration and production sub-industry portion of the S&P Total Markets Index. The S&P TMI tracks all the U.S. common stocks listed on the NYSE, AMEX, NASDAQ National Market and NASDAQ Small Cap exchanges. The Oil & Gas Exploration Index is an equal weighted market cap index. Issued by State Street SPDR.

ERY: This ETF tracks the Energy Select Sector Index. This index includes companies from the following industries: oil, gas & consumable fuels and energy equipment & services. This is a bearish index. Issued by Direxion.

ERX: This ETF tracks the Energy Select Sector Index. This index includes companies from the following industries: oil, gas & consumable fuels and energy equipment & services. This is a bullish index. Issued by Direxion.

AMLP: This ETF tracks an index that is designed to give investors exposure to the infrastructure component of the Master Limited Partnership asset class. Constituents each earn at least 50% of EBITDA from assets that are not directly exposed to changes in commodity prices. The index is disseminated by the New York Stock Exchange and is a composite of 25 energy infrastructure MLPs. Issued by ALPS.

Bonds

SHY: This ETF tracks the index that measures the performance of U.S. Treasury securities that have a remaining maturity of at least one year and less than three years. Issued by iShares.

TLT: This ETF tracks the index that measures the performance of U.S. Treasury securities that have a remaining maturity of at least 20 years. Issued by iShares.

BND: This ETF tracks the index that measures the performance of the U.S. investment grade bond market. Issued by Vanguard.

HYG: This ETF tracks an index that is designed to provide a broad representation of the U.S. dollar-denominated high yield liquid corporate bond market. Issued by iShares.

BIL: This ETF tracks the Barclays Capital 1-3 Month U.S. Treasury Bill Index. This index includes all publicly issued zero-coupon U.S. Treasury Bills that have a remaining maturity of less than 3 months and more than 1 month, are rated investment grade, and have $250 million or more of outstanding face value. In addition, the securities must be denominated in U.S. dollars and must be fixed rate and non convertible. Issued by State Street SPDR.

JNK: This ETF tracks the Barclays Capital High Yield Very Liquid Index. This index includes publicly issued U.S. dollar denominated, non-investment grade, fixed-rate, taxable corporate bonds that have a remaining maturity of at least one year, regardless of optionality, are rated high-yield (Ba1/BB+/BB+ or below) using the middle rating of Moody's, S&P, and Fitch, respectively (before July 1, 2005, the lower of Moody's and S&P was used), and have $600 million or more of outstanding face value. Issued by State Street SPDR.

TBT: This ETF tracks the index that measures the performance of U.S. Treasury securities that have a remaining maturity of at least 20 years. Issued by ProShares.

Commodities

GLD: This ETF is designed to track the spot price of gold bullion. Issued by State Street SPDR.

IAU: This ETF is designed to track the spot price of gold bullion. Issued by iShares.

DBC: This ETF tracks a rules-based index composed of futures contracts on 14 of the most heavily-traded and important physical commodities in the world. Issued by Invesco PowerShares.

SLV: This ETF is designed to track the spot price of silver bullion. Issued by iShares.

USO: This ETF tracks changes in the price of light, sweet crude oil, as measured by the changes in price of the futures contract on light, sweet crude oil traded on the New York Mercantile Exchange. Issued by US Commodity Funds.

DBA: This ETF tracks the DBIQ Diversified Agriculture Index Excess Return. This index is a rules-based index composed of futures contracts on some of the most liquid and widely traded agricultural commodities. The Index is intended to reflect the performance of the agricultural sector. Issued by Invesco PowerShares.

DZZ: This ETF tracks an index that is designed to reflect the performance of certain gold futures contracts plus the returns from investing in 3 month United States Treasury Bills. Issued by Invesco PowerShares.

UCO: This ETF tracks an index that consists of futures contracts on crude oil. Issued by ProShares.

SCO: This ETF seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of The Dow Jones-UBS Crude Oil Sub-Index. Issued by ProShares.

ZSL: This ETF seeks daily investment results, before fees and expenses, which correspond to twice (200%) the inverse (opposite) of the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London. Issued by ProShares.

AGQ: This ETF seeks daily investment results, before fees and expenses, which correspond to twice (200%) the daily performance of silver bullion as measured by the U.S. Dollar fixing price for delivery in London. Issued by ProShares.

GLL: This ETF seeks daily investment results, before fees and expenses, which correspond to twice (200%) the inverse (opposite) of the daily performance of gold bullion as measured by the U.S. Dollar fixing price for delivery in London. Issued by ProShares.

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